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Mapping the Digitization Policy

by Sandeep Bhushan

When regulation of the cable and broadcast sector became part of the remit of Telecom Regulatory Authority of India (TRAI) in 2004, introducing ‘addressability’ in cable distribution was flagged as one of its core concern by the amended TRAI Act. Seven years later when the government introduced ‘mandatory’ digitization through an amendment to the Cable Television Network (Amendment) Act, it was only the logical extension of this ‘addressability’ mandate.

Why did the government introduce digitization?

To put it simply- the idea was to align the disparate and chaotic cable market whose elements were out of sync with each other. The broadcasters for instance were not willing to share content with all cable operators. Discriminatory sharing of content meant that Star which was in a cut throat competition with Zee in the entertainment segment refused to share any content it generated. There were also reports that broadcasters like Zee were in turn charging differential rates from cable operators not part of ‘Siticable’- cable operations owned by the network. The Local Cable Operators, the last mile distributors were not just fragmented, they were also not willing to declare the actual number of subscribers. This meant that the difference between the actual and the declared numbers grew constantly with LCOs pocketing bulk of the unreported tariff collections. Emergence of pay channels after 2000 only worsened matters leading to an uncontrollable inflation in tariffs that touched nearly 1100 percent by 2004. Finally the MSOs, also equally fragmented, were demanding carriage and placement fees from broadcasters. Partly this was on account of technical reasons as analogue transmission meant narrow bandwidth which allowed for only a fewer number of channels at a time compared to the digital mode.

In sum the chaos was leading to hemorrhaging of revenues. In 2004 TRAI reported an annual turnover of Rs 15,000 crores. In 2009, the figure had climbed to 25,700 crores according to a FICCI report. This steady loss of revenues in the backdrop of the government’s efforts to grapple with mounting fiscal deficit appeared to have forced the government’s hand into settling for addressability in the hope that a certain transparency and accountability will be introduced into the system.

But the TRAI realized the difficulties it was confronted with. As the Consultation Paper (Oct 2004) admitted, ‘uniform mechanisms’ in a diverse market were not entirely possible. This is why the movement towards ‘addressability’ was to be a gradual one and protection of consumer interests was of paramount importance.

Clearly the bad experience of implementing the Conditional Access System (CAS) was playing on its mind. CAS, which was introduced in 2003 a year before TRAI came into the picture, was expected to deliver a-la-carte’ channels paid for by the subscriber. But the a-la-carte’ channels were priced steeply or bundled with others in a bouquet resulting in a complete subversion of the original CAS logic. Additionally the policy was poorly advertised making it very difficult for subscribers to spend so much money buying a Set Top Box (STB). It also ran into political problems. In Mumbai, BJP ally Shiv Sena refused to allow for its implementation. Finally the burden of implementation of CAS came upon the cable operators who neither had the wherewithal, nor the interest in implementing it.

Faced with these, the government went about first trying to rationalize the market by forging technical and commercial linkages through a series of orders promulgated by TRAI.

The first policy measure was an order mandating interconnection agreements between the broadcaster and the MSO and the latter with the LCO. This basically meant that all broadcast content had to be shared between the different stakeholders on a non-discriminatory basis. ‘Must Provide’ was the new watchword. Secondly a ‘Register of Interconnect Agreements’ was also promulgated by TRAI. All stakeholders henceforth would have to register their interconnect agreements with TRAI. In the process TRAI for the first time recognized the three-fold cable distribution hierarchy comprising broadcaster, the Multi Systems Operator (MSO) and the LCO. Finally TRAI issued the first Tariff Order in January 2004 that froze tariff levels to December 2003. This policy intervention on the tariff issue formed the bedrock on which a series of orders were issued in subsequent years.

The three-fold distribution hierarchy which emerged with the cable distribution business in the 1990s was finally recognized by the government. All subsequent policy initiatives by the government and eventually the digitalization measures were based on this. MSOs for example became the key stakeholders in the distribution business.

Apart from forging techno-economic linkages through policies, TRAI also discussed alternative ways to regulate and introduce addressability. ‘Voluntary’ acceptance of addressability was debated but rejected in view of the CAS experience. ‘Trap’ method was also discussed but scrapped because of opposition from broadcasters/MSOs who feared that ‘traps’ could be hacked.

By 2011 the historic dip in the fortunes of television industry on the back of the global slump, the issue of digitized addressability assumed a hitherto unseen urgency. For the record the government had already accepted the need for digitization of cable operations in 2005. But owing to serious differences between stakeholders especially the paying capacity of consumers, the matter existed in the background somewhere. But precarious financial situation post-2010 led to increased pressure on the government from industry bodies like News Broadcasters Association.

In Oct. 2011 the government promulgated an ordinance making digitalization mandatory by 2014. The very next month an amendment to the Cable TV Network (amendment) Act 1995 was moved which made non-implementation of digitalization by any stakeholder an offence that could result in cancellation of license.